Dow Jones Climbs 10.9%

Could this be the end of the beginning? After weeks of really bad news the Dow Jones Industrial Average shrugged off data regarding poor consumer confidence to record a 10.88% rise to 9065. The prospect of a 0.5% cut in US interest rates appears to have over ridden the negative sentiment. It will be interesting to see how Asian and European stock markets reacts during the early part of Wednesday.

French Economy Overtakes UK

One consequence of the £ falling against the Euro and Dollar is that we are falling down the world rankings for the size of our economy. For so long we've heard that the UK is the world's fourth largest economy. No longer. On a trade weighted index the £ is now the weakest it's been seen 1996 - the year before Labour came to power. As a result the UK has been overtaken by China and France. With a quarterly GDP of $559 billion we are 7.8% behind France who are fifth and 13% of Italy who are seventh.

French Holiday Homes in Sales Slump

According to the Daily Telegraph the sales of French holiday homes have slumped. The fall in sales is particularly sharp in traditional British havens such as the Dordogne. The problem is caused by a logjam in the British housing market. French rural properties are generally bought by more affluent British consumers - sometimes in the runup to retirement. With the British property market in freefall, prices are down 12-13% on 2007, potential buyers of French property are unable to raise the necessary cash.

Petrol Prices on the Way Down

We may be nearing financial Armageddon but there is some good news out there. It seems the collapse in the global economy is driving down the price of oil. Brent Crude is now below $80 per barrel. Despite the £ sterling weakening against the US $ this has led to falls in prices at the pump. Tesco have announced a cut of 3p per litre to £1.06. By my reckoning that's still just over £4.80 per imperial gallon. But it seems Tesco are using market forces to bring down prices. Maybe we should put Tesco boss Terry Leahy in charge of running the economy?

The Truth About Iceland

As the FTSE spirals below 4,000, the UK Government intends to use legal action to pursue an estimated £19 billion worth of British cash tied up in Iceland. This is made up of £1 billion owed to UK local government, £6 billion owed to UK individuals and £12 billion owed to UK companies and institutions. The strangest thing is, what were these people and organisations doing relying so heavily on a tiny country?

Iceland has a population of 320,000. The UK's £19 billion represents and investment of almost £60,000 a head. Kent County Council, which represents a population of 1.4 million has £50 million at stake. The truth is emerging that, contrary to earlier reports, ratings agencies were flashing up warnings about Iceland as early as April. However, I would go further. The apparent financial success of Iceland and Icelandic companies - especially their banks - always smelt a little fishy.

Over recent years Icelandic banks such as Kaupthing, Glitnir and Landsbanki have been offering very attractive rates of interest. Generally much better than their UK domiciled equivalents. How could they do this on a long term basis? What intrinsic competitive advantage did they hold over traditional banks. Second, Icelandic investment companies such as Baugur were buying up huge chunks of the British high street with investments in companies such as Iceland (the grocery retailer), Karen Millen, House of Fraser and Hamleys. None of these companies was known to trading any better than their equivalents. But Baugur was awash with cash. Even West Ham United, a generally under-performing English Premiership football club, has been acquired by Icelandic owners. Who just happens to be connected to Landsbanki.

There's a generally in life, and one especially apt for finance, that if something sounds too good to be true it probably is. The rise of Iceland as an economic power house was too good to be true. The UK people, businesses and local government authorities that have lost money should have used common sense rather than waiting to be told by the ratings agencies that there was something rotten in Iceland.

UK Councils Risk Money in Icelandic Banks

The latest twist in the banking crisis is that UK local government has hundreds of millions of pounds at risk. This is money on deposit with a number of Iceland's banks. As it stands, these deposits are not being guaranteed by the UK Treasury. The Treasury has undertaken to guarantee private deposits and plans to sue the Icelandic government for losses. According to a report in today's Daily Telegraph:

Based on information from Conservative councillors, the Tories said they had identified at least £160 million of council funds exposed in Landsbanki or Heritable.

One authority alone - Kent County Council - has £50 million deposited in Landsbanki and Heritable, as well as Glitnir Bank.

I am located in Kent and a Kent council tax payer. If the money is never recovered each Kent council tax payer stands to lose £100 each!

Pipex - Rubbish Telecoms Provider

Pipex are a rubbish company. They are owned by those jokers of the telecoms market Tiscali. Yesterday I received a letter telling me my phone would be cut off as my account was apparently in arrears. When I tried to use my phone I was given a message telling me my service was suspended and that I should phone customer services on 150. Guess what? Number 150 was engaged and remained so all day.

I got through to Pipex via an 0800 number. The staff at the end of the line told me that as an ex-Bulldog customer I needed to speak to Pipex Homecall - a separate division. I spoke to Pipex home call who told me they couldn't help as I was a business customer and needed to speak to the Pipex business team. So I phoned back the business team. I was asked, "Are you an ex-Bulldog customer?". On answering "Yes", the phone was put down. I originally signed up with Bulldog. At the time they operated UK call centres, based in Manchester. Now they have been acquired by Tiscali they have gone down the pan.

Several frustrating phone calls later I was told by Pipex's Lithuanian call centre, that they had a problem and that I shouldn't be cut off. However, this person couldn't rectify the matter, neither could their boss. Several hours later I was called by someone on the Pipex customer services team. They wanted to check my details. When I gave these they explained they had called the wrong number. I then asked them to rectify my problem. They couldn't. Several emails and phone calls later I have received an email from them asking me to call their customer services team on an 0871 number. Each call costs 10p per minute. Why should I be paying this when they have cut me off in error? And guess what, I can't call them from my landline as they have cut me off. Pipex business telecoms are totally crap. Do not deal with them.

Bradford & Bingley - Dalek City

In all the turmoil I forget to find time to mention the demise of Brandford and Bingley. In the 1980s I had the fortune to live in Bingley, just a couple of hundred yards from the B&B headquarters. These were affectionately known by the locals as "Dalek city". For the simple reason that the yellowy/creamy concrete monstrosity was so out of step with the rest of Bingley's architecture.

As a former local resident I was attracted to saving with the then then building society, and eventually, received the flotation shares. I had plenty of time for the then chief executive, Christopher Rodrigues but sold my shares when he left.

Market Turmoil - Business as Usual

In all the frenetic media coverage its difficult to remember that most business activity is carrying on as usual. The world of Wall Street and the City appears almost completely detached from the day to day activities of most businesses.

I look after a range of clients across a number of different industries and market categories. Most are carrying on as usual. Yes, they are all aware that there is a coming recession. And they are all aware that consumers and small businesses are acting in a more prudent manner. But, so far, the apocalyptic headlines have made little real difference to their business performance. If you're selling a business, I would recommend you contact them.

Only yesterday retailer Tesco - not a client of mine - reported an 11% rise in profits. Too bad for Tesco, the media wasn't interested. At the other end of the scale business carries on for many small businesses. Yes, if you're an estate agent or mortgage broker there isn't much activity. But how many businesses are directly connected to a sector that was bloated by years of above inflation growth in house prices?

Crude Oil Price Boosts Economy

It may not be very much but the price of crude oil looks like settling at around $100 per barrel. This level may be sufficiently low to provide a whole series of benefits for the wider economy. Interest rates, food inflation and of course the price of domestic heating may all start to fall.

A Precession rather than a Recession

Its a torrid day on the stock exchange with falls of 5% to 25% across the banking sector. This leaves the Royal Bank of Scotand (RBS), Halifax Bank of Scotland (HBOS) and Bradford & Bingley all trading below their deeply discounted rights issues. The banks, estate agents and house builders may all be in trouble but is there a recession? Technically no. The preferred definition of a recession is two consecutive quarters of declining GDP. At the moment the available data tells us the economy is still growing. However, there is litte good economic news and what we get seems to imply there's a recession on its way. My definition of this is a pre-cession. Its going to happen but its not here yet.

The bad economic news contrasts with my day to day feedback from clients. Most will admit trading conditions are tight. But they are far from declining. I have picked up two new clients in the past month. And one client has announced he is to treble his marketing budget. I get the distinct feeling that athough the financial and building sectors are in trouble, much of the rest of the economy remains largely unscathed.

John Charcol Fires 25% of Workforce

As the crisis in the UK homes market continues to intensify, leading independent mortgage broker John Charcol has announced that a quarter of its staff is to be made redundant. Charcol has a tremendous reputation and frequently quoted by the quality newspapers. If they're in trouble then the weaker players must be in a really bad way.

Reports are now flying on from all directions that the housing market has collapsed. Price and transaction levels are falling. Yet little has really been done by the UK government. Maybe it's time for a review of stamp duty.

LinkedIn Worth $1 Billion

According to a report on Telegraph.co.uk, social networking website LinkedIn is now worth $1 billion. The valuation is based on $53 million of new capital from Bain Capital. Some of the new money will be used to expand in Europe. LinkedIn already has more than 1 million members in Europe.

I am a member of LinkedIn and cannot see what the fuss is all about. I find the navigation system extremely hard to fathom out.

Willem Buiter Calls for Rate Rise

Meanwhile, with B&B entering the financial intensive care unit, former Monetary Policy Committee (MPC) member Willem Buiter is calling for a rise in base rates. Buiter, a professor at the London School of Economics (LSE), believes the threat of inflation is a real danger to the long term health of the economy. He doesn't go as far as me in suggesting that the attempts to alleviate the credit crunch are directly fuelling speculation in commidities, but he does suggest that governments are being dishonest in not owning up to the fact that there is an inevitable decline in living standards that governments are powerless to stop. As Gordon Brown is finding out, declining living standards don't play well with democracies.

Bradford & Bingley Raise £400m

Bradford and Bingley's shares fell 20% this morning as formal details emerged of a £400m+ refinancing plan. Stage 1 involves an injection of £179 from new investo Texas Pacific Group (TPG). TPG acquires 23% of B&B's equity. Stage 2 is a rights issue to existing shareholders priced at 55p per share.

Rumours have been circling for several week's regarding the problems at Britain's biggest "buy to let" (BTL ) lender. B&B has a 20% share of the BTL market and this segment of the mortgage market was perceived to be particularly vulnerable to the property downturn.

An immediate casualty of the bank's troubles is chief executive, Steven Crawshaw. Crawshaw is apparently on sick leave suffering from angina. A fairly serious health complaint. Crawshaw made the mistake of denying the need for a rights issue only 2 months ago. Now that the funding crisis is acute, he is an obvious candidate to join Northern Rock's Adam Applegarth on the banking career scrapheap.

UK House Prices Continue Fall

According to Britain's largest building society, The Nationwide, UK property prices fell 2.5% last month. This is the biggest monthly fall since records began 17 years ago.

Whilst some analysts expressed surprise at the rate of the decline it is obvious that the decline should be short and sharp. Housing is a non-perishable product. If everyone from the Council of Mortgage Lenders to the Government is predicting a 10% decline over 12 months, why would any purchaser not hold out for a reduction against asking prices set in a more buoyant environment? In essence these forecasts, particularly those from more credible sources, tend to be reflexive. That is self-fulfilling prophecies. As sellers, buyers and lenders lower their price expectations.

Bill Gates Buys into Carpetright

According to a report in today's TIMES, Microsoft founder Bill Gates has bought into UK furnishings retailer, Carpetright. The 3% investment has been made via the Cascade Investment LLC, the personal investment company of the billionaire. The investment is thought to be worth £15 million.

The UK furnishing market has been going through a tough time. The credit crunch and the consequent reduction in home moving activity has reduced underlying demand. The early May hot weather also saw demand for products such as beds drop as consumers directed their attention to outdoor activities. Gates' advisers have obviously spotted a European buying opportunity. The UK remains outside of the Euro, which has strengthened significantly against the US Dollar.

Carpetright is led by Lord Harris of Peckham, who founded the business in 1988. Carpetright has stores in Belgium, the Netherlands and Poland.

Denis MacShane MP Calls for Tax Cuts

In today's Telegraph, Labour MP Denis MacShane calls on Gordon Brown to cut taxes.

Here is a direct quote from MacShane's article.

Any prime minister in office today would feel the voters' anger as they see their cherished plans to spend their own money as they see fit destroyed by rising prices combined with the insatiable greed of the state in all its manifestations to take the people's money for its own, often incompetent and counter-productive ends.

I particularly like the reference to "insatiable greed". Denis MacShane, the MP for Rotherham is acutely aware that the real backlash against Brown is that he is obsessed with tax and spend. Brown is an unreconstructed socialist obsessed with destroying the middle classes ability to become independent of his client state. To problem now though, as MacShane observes, is the way the tax burden has risen for those on average incomes. It is these people that are deserting Labour in their droves.

Mortgage Lenders Predict House Price Decline

The Council of Mortgage Lenders have predicted a 7% fall in UK housing prices during 2008. This a 6% decline from existing prices, already down 1% on 2007. As I have mentioned before, such forecasts tend to be reflexive. Or in laymans terms, self-fulfilling. Once the people who control the vast majority of the finance markets for houses decide your house is worth 7% less than a year ago, they will lend proportionately less to fund its purchase. The prices therefore come down. A problem is the speed at which this happens. In previous downturns sellers failed to respond to the new, lower, price expectations and property remained unsold. If this happens, the market will ground to a halt, leaving estate agents, solicitors and DIY stores with much lower levels of business. This of course leads to more unemployment. Only this week, Economist Roger Bootle forecast that unemployment will rise by 750,000.

In my view the market will adjust more sharply. There will be a bigger price decline as buy to let landlords and those with highly leveraged borrowings bring a glut of property to a difficult market.

Oil Hits $130 per Barrel - before the fall

According to a report on Telegraph.co.uk, the price of crude oil has now reached $130 per barrel. Worse, the price of future oil is rising. With prices for deliveries next month rising $15, and prices for 2016 rising $25. The figures indicate that the market for oil speculation is taking on further momentum.

In my opinion, just when everyone climbs on the speculation bandwagon we should start looking for an oil price fall. Sophisticated economists may well talk about the decoupling of underlying GDP from oil prices, and vice versa. I suspect, however, that once all the liquidity pumped in to prevent the credit crunch destroying the housing market is used up oil prices will at first stabilise and then fall. As an asset, unlike shares, oil doesn't pay a dividend and is expensive to store. When the GDP downturn bites, speculators will move out of oil as quickly as they deserted sterling back in 1992.